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On the Hook

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From phone books to wireless towers, Amdocs Limited keeps the phones ringing. This 19-year-old company supplies customer service, billing, and order management systems to communications companies worldwide, and it provides sales and publishing services for telephone directory companies.

Amdocs’ products and services can be broken down into two large divisions: business support systems and customer care and billing services. Within these divisions, their products and services fall into five major categories: order management, customer relationship management, outsourcing, prepaid plans, and directories.

Amdocs has systems available for wireline, wireless, broadband, electronic, mobile commerce, and Internet services. The company also can support companies that offer multiple service packages, otherwise known as “convergent services.” Amdocs has a full range of directory sales and publishing systems for publishers of yellow and white pages as well as online directories. Because of the complexity of their products and services, Amdocs provides all kinds of customization, implementation, system integration, ongoing support, system enhancement, maintenance, and outsourcing.

Geared toward accommodating the needs of communications providers, the business support services products include an extensive library of software products. The software handles customer relationship management, order management, call rating, invoice calculation, bill formatting, collections, fraud management, and directory publishing services.

Ensemble software is Amdocs’ main customer care and billing systems offering, and its several versions are made up of individual business support services modules customized to meet the needs of the communications industry. The specific products in the suite vary by customer, but generally cover customer care, order management, event processing, invoicing, bill formatting, revenue management, network resource mediation, commission management, fraud management, electronic bill presentment and payment, churn management (which refers to customer attrition), and intercarrier settlement.

The Horizon suite of customer care and billing systems products is focused on the IP service provider market. An acquisition from Solect, Horizon allows service providers to offer and bill for IP services over packet-switched networks, and supports new business models, virtual service providers, mobile commerce, content aggregation, and revenue sharing.

The ADSNG/Family of Products is Amdocs’ central offering in the directory systems area. It provides comprehensive support for yellow and white page directory sales and publishing operations, Internet directories, and catalogs, including fully integrated e-commerce solutions. The systems support publishing operations with thousands of representatives who accommodate a customer base of hundreds of thousands of businesses and publish hundreds of different directories every year. The line of products includes several modules, including sales, publishing, marketing and information analysis, prepress, customer service, and financial management.

Amdocs’ 3G (the name refers to the “third generation” of mobile communications products now starting to hit the market) is the third of Amdocs’ product suites and is comprised of up to 30 advanced applications geared toward supporting companies now offering 3G products. It supports 2G, 2.5G, and 3G networks. In cooperation with Accenture, Amdocs will offer its 3G solution globally.

For the second quarter of 2001 (the third quarter in Amdocs’ fiscal year), Amdocs recorded a revenue of $404 million, up 36% from a year before. Net income increased 44.4% to $74.1 million with earnings per share increasing 43.5% to $0.33 per diluted share, compared to $51.4 million or $0.23 per diluted share in the same quarter last year. The firm went public in June of 1998 at $14. It recently traded at $31, much closer to its 52-week low of $3.06 than to its $80.50 high. With a market cap of $8.9 billion market cap, Amdocs trades at a 34% premium P/E multiple of 36.7, versus the 27.3 average multiple at which the data processing sub-industry is priced.

Amdocs recently signed a multiyear license and services agreement with Verizon Information Services (VIS), the print and online directory publishing division of Verizon. Amdocs will supply them with one of their ADSNG/Family of Products solutions for yellow and white pages and electronic products, serving about 1.8 million business customers. If Amdocs can hold its current price’s line, it should be able to print some new money before year end.


Lotions and Potions

XOMA, Ltd. hopes to cure what ails you with its array of pharmaceutical products

XOMA is a biopharmaceutical firm that develops antibodies and other protein products to treat a variety of diseases from cancer to immunological and inflammatory disorders and infectious diseases. The company currently has a number of products under various phases of testing and development.

Naturally, biochems are, to put it mildly, speculative ventures–their prospects must be judged primarily upon the promise of their drug pipelines. Xanelim is XOMA’s new treatment for psoriasis, a chronic skin disease typified by abnormal growth of skin cells, resulting in inflamed, swollen, and scaly patches of skin. Xanelim is a monoclonal antibody designed to inhibit T-cells from binding to the skin and causing the skin cell growth and lesions of psoriasis. In the most recently completed Phase III trial, about 75% of patients improved more than 50%. Xanelim is also in Phase I/II evaluation for kidney transplant rejection. Xanelim is a collaborative effort with Genentech, Inc. From a purely financial standpoint, psoriasis is just the kind of disease you want your pharmaceutical firm to be trying to treat: it’s common (affecting over 7 million Americans); it’s not cured by Xanelim or any other drug; patients have a normal lifespan (so there will be repeat customers indefinitely); it’s not contagious; and it’s annoying and visible (unlike, say, high blood pressure, where most potential patients do not seek treatment). The greatest downside from a financial standpoint is the possibility of serious side effects that might swamp any benefit; this is particularly a risk because psoriasis itself, while annoying, is not life-threatening, so most people won’t take undue risks to try to cure it. Fen-phen, for example, was pulled from the market not just because it killed some people, but because excess weight is not so dangerous as, say, cancer, where the fact that chemotherapies can kill patients does not keep them from being sought by patients and doctors alike.

XOMA is also working on treatments for the many related diseases that fall under the term “cancer.” ING-1 is a monoclonal antibody that targets breast, colorectal, prostate and other adenocarcinomas (a form of cancer originating in various organ walls). It is currently in Phase I/II trials with patients with advanced cases. XOMA has designed the study to determine the safety, tolerability, immunogenicity, and pharmacokinetics of intravenously administered ING-1, and will also, naturally, look for any anti-tumor activity. These early trials should be completed this year.

Genimune delivers a proprietary enzyme (rGelonin) to the CD-5 antigen in certain cancers such as T- and B-cell lymphomas and chronic lymphocytic leukemia. It may also treat autoimmune diseases like rheumatoid arthritis. XOMA is preparing to file an investigational new drug application with the FDA to start tests later this year.

In a partnership with a company called Onyx Pharmaceuticals, XOMA is scaling up production to commercial volume and will manufacture Onyx’s adenovirus product, CI-1042. This product is tumor-selective and is in a Phase III clinical trial for head and neck cancer and in Phase I and II trials for other cancers. It has also been recently experimented with as a cancer-eliminating mouthwash in mouth cancer patients. Baxter Healthcare Corporation is continuing development of the product under a license agreement. Taking a different tack, XOMA will supply NEUPREX for a Phase II trial, which Baxter will fund and conduct on patients with Crohn’s Disease. This disease is a systematic inflammatory condition associated with endotoxemia that affects the gastrointestinal tract.

XOMA sold 3 million common shares in an offering underwritten by US Bancorp Piper Jaffray, CIBC World Markets, Adams, Harkness & Hill, and Arnhold & S. Beichroeder, Inc, for $43.3 million. XOMA’s objective was to have enough funds to complete the commercialization of Xanelim, and they feel that they have achieved that with this sale. Time will tell.

For the second quarter of 2001, XOMA recorded a net loss of $6.6 million or $0.10 per share compared to $6.3 million (also $0.10 a share) a year earlier. Revenue increased to $5.2 million from $2.3 million a year before, and can be mainly attributed to the manufacturing agreement with Onyx Pharmaceuticals, initiated in January. With its $760 million market cap, XOMA expects a loss for 2001; the biomedics sub-industry was priced at a P/E of 49.6 (as of August 7).


Making Music

Still have VHS or audiocassette or tapes? Zomax Inc. wants to show you a whole new world

Zomax Inc. claims to be “Your Outsourcing Services Solution” for producers of software and media CDs and DVDs. The Plymouth, Minnesota-based firm was founded and went public in 1996 as Zomax Optical Media. The company provides the full range of CD and DVD services, including communications management; CD/DVD authoring and mastering; CD/DVD replication, production and turnkey assembly; distribution/end-user fulfillment; and returns management.

Major software has, of course, largely completed the transition from floppy disks to CDs, and is increasingly moving to DVDs as size and complexity of programs increases. But software, like the rest of the tech business, is in more than a bit of a slump lately.

DVD movies, however, seem about the only part of the economy that’s still showing explosive growth this year, with sales for 2001 through August more than doubling (to $128 million) from a year earlier. Video rentals of movies are increasingly moving to DVD; Blockbuster just announced they’re culling 25% of their existing VHS stock and replacing the shelf space with DVDs. Also, unlike VCR tapes (except for childrens’ titles and a few new big movies), DVDs are often sold at low prices in the hopes of enticing large sales to final viewers. With only about 16% of U.S. households estimated to have any type of DVD player at the end of last year, and many of those attached to computers, not TVs, there’s plenty of room for growth. (In case you’re in the VHS Dark Ages, DVDs feature better picture resolution and sound quality, no need to rewind and, often, extra tracks like outtakes and directors’ comments.)

Zomax’s communications management business consists of a variety of different services, from telephone order management and customer service to technical support. Since the company operates internationally, they are prepared to deal with requests in foreign currencies and 16 different languages. They also provide software and Web site creation and Internet marketing for e-businesses. Zomax will also help with distribution, from product procurement to warehouse management to delivery.

The CD/DVD Authoring and Mastering service helps companies encode their data for CDs or DVDs and then produce the actual disc. Once the data is ready, a glass disc is coated with light-sensitive material and etched with a laser. The modified glass disc is then used to produce a metal stamper for disc replication. Zomax has the capability to use ultraviolet lightwaves as well as the traditional blue light systems in their lasers, providing for a higher level of precision. They are capable of same-day turnaround when necessary. Along with its authoring and mastering capabilities, Zomax is also able to replicate CDs and DVDs at high speeds in large volumes.

Production and turnkey assembly is basically a fancy way of saying packaging and printing. Zomax provides standard jewel cases for CDs, more complicated packaging using automated lines and hand assembly for the most complex items.

Distribution/end-user fulfillment is all about getting the product to the customer efficiently. Zomax analyzes fulfillment needs and helps set up distribution systems, warehousing, and inventory management systems, and coordinating “just-in-time” shipments with the needs of distributors.

The final aspect of Zomax’s service capabilities is returns management. They can also disassemble and recycle materials from outdated or excess software packages, removing all applications and data from the materials and recycling the manuals, jewel cases, and packaging. They offer a full hardware testing service to scan and redistribute peripheral computer equipment, detailing all activities in easy-to-read reports.

Zomax has several competitors–independent service providers such as Disctronics, Bertelsmann, Cinram International, StarTek, Future Media Productions, Modus Media International, and Metatec. Other competitors include affiliates of music companies, such as Sony Music Entertainment, PolyGram Holdings, Warner Music, and BMG Music.

For the quarter ending June 29, 2001, Zomax had a net income of $3.5 million, down from $7.8 million last year. Diluted earnings per share were $0.11; in the second quarter of 2000, they were $0.23. Sales were off more moderately, to $51.8 million, from $63.3 million a year earlier. Jim Anderson, chairman and CEO, attributes this decline to the “continued slowdown in the PC and software markets”–not exactly new news.

For now, Zomax anticipates that business levels will remain flat for the rest of the year. With its $200 million market cap (at August 7, 2001), Zomax trades at a 78% discount P/E multiple of 9.0, vs. the 40.9 average multiple at which the computer peripherals sub-industry is priced.


Safety First

Risk can’t be avoided, but helps you take only as much as you can handle

Even broadly diversified portfolios have risk. Chances are, you have clients borrowing on margin, and chances are, they’re all limited to the same amount of debt as a portion of their account value. Our typical clients have diversified portfolios of mutual funds, stocks, REITs, and bonds. But what if a client wants to buy on margin to take advantage of a short-term opportunity without incurring a capital gain?

Enter and, whose Value-at-Risk methodologies follow changes in client portfolios and market conditions to allow formalized and objective determinations of margin requirements. In a nutshell, this site lets you learn what institutional players already know–how the RiskManager and CreditManager programs can uniformly determine risks across a wide spectrum of securities and loans.

Of course, you could rely on your experience to make such determinations yourself. But having an objective system in place that will automatically tell you how much leverage to allow and to reflect any changes in the portfolio makes sense. The RiskManager application can also figure firm-wide risk across all margined portfolios, i.e., whether the collapse of a few stocks or a single sector could put assets in harm’s way. (If most of your clients have been in the same networking stocks for the past year and a half, you probably know how real such risks can be.)

And if the study of risk is a leap into higher math that you aren’t willing to take, you don’t have to. ( is well designed; you can dip into content without navigating cluttered links or ads. The displays for all of the various site’s sections are right there on the main page. There is also the requisite “News” section, with scrolling hyper-linked headlines. Next to it there is an “Events” section, with two listings for speaking engagements/exhibitions.

On the left-hand side of the page there is an empty field with three buttons. The “lookup” button enables you to search for a company’s ticker symbol by name, the “riskchart” button provides a chart for whatever ticker symbol you enter, and “go” displays the “riskgrade” for the company in question.

If you’re not a risk wonk, click into a brief history of Riskmetrics and a description of the business today. The products page provides links to RiskMetrics’ four main products: Risk Software (which includes four linked products: RiskManager, CreditManager, CDO Manager, and PensionManager), Risk Data, Risk Education, and RiskGrades. The RiskManager page provides you with a brief description of the product and a sidebar with links to the other software products, tours, specifications, data, resources and documents, and contact information.

If you click on the link for tours, you’ll find four different tours from different perspectives: banks, hedge funds, asset managers, and brokerages. Take them all–they take you step-by-step through applications of the software, showing actual pages from the program in operation.

Clicking on the CreditManager link pulls up a description of the product. The link to CDO Manager (CDO stands for “collateralized debt obligations”) describes how this desktop application is designed to analyze complex configurations of financial assets within a CDO.

The Risk Data link explains what DataMetrics (a division of RiskMetrics) does and has links to three different pages: standard data sets, RiskMetrics data sets, and CreditMetrics data sets.

The risk education page provides a paragraph about why the education programs–online courses, training programs and seminars, continuing education credits, and resources and documents–were created. The online courses page offers links to the three courses they offer: Exploring Risk, Managing Risk, and Understanding Risk. Click on any of the course titles for a description of the course and three links: one to enroll, one for returning students, and one about CPE credits.

Training Programs & Seminars opens a page with a list of seven different seminars, each with a paragraph description. The continuing education credits page explains what CPEs are and which of RiskMetrics’ courses will get you any.

RiskGrades opens a page with a short descriptive paragraph and a link to the RiskGrades site ( This site has many options and tools for understanding and calculating risk and a free membership. You can take advantage of all kinds of charts and historical data as well as calculate the risk in your own portfolio and search for stocks by their RiskGrade. You can set up a Risk Alert, too–if a holding in your portfolio passes a certain threshold, you can be notified via e-mail or just have it show up in your portfolio on the site.

Clicking on the Research page pulls up a few new articles and a list of links: Technical Documents, Journals, Working Papers, and Research. The journals link includes the RiskMetrics Journal, CreditMetrics Monitor, and RiskMetrics Monitor.

This site can help you take the otherwise perilous risk-modeling journey without putting a dime at risk. You can set up a free, sampling account and see whether this site can help you defend clients’ portfolios bottom line in advance of events that are both within and beyond your control.